Rogers buys Mobilicity plus Shaw’s 4G spectrum; Wind gets windfall

Canadian quadruple-play operator Rogers Communications announced yesterday that it has received government approval for two deals to acquire 100% ownership of small cellular rival Mobilicity for CAD440 million (USD356 million) and purchase the unused mobile spectrum of cableco Shaw Communications for CAD350 million. Industry Canada confirmed that it has approved the deals, which involve Rogers transferring all of Mobilicity’s AWS-1 (1700MHz/2100MHz) frequencies to up-and-coming rival Wind Mobile and splitting Shaw’s AWS-1 spectrum between Wind and Rogers, whilst Wind has agreed to give Rogers a portion of its existing AWS-1 frequencies in return.

Specifically, Rogers will retain Shaw’s 20MHz AWS licences across British Columbia and Alberta, while transferring the remainder of Shaw’s regional AWS frequencies – 10MHz in parts of British Columbia, Alberta, Saskatchewan and Northern Ontario – to Wind. All of Mobilicity’s AWS spectrum – across Ontario, British Columbia and Alberta – is being transferred to Wind, and in return Rogers is taking a 10MHz portion of Wind’s spectrum holdings in Southern Ontario.

Via the transactions, Rogers will gain more contiguous spectrum to upgrade and expand 4G services, and it announced that it ‘will immediately boost speed and quality for wireless customers in British Columbia, Alberta and Southern Ontario.’ Simultaneously, Wind will gain extra spectrum to launch 4G LTE alongside its existing 3G services. Wind’s CEO Alek Krstajic announced in a statement: ‘This will significantly improve our network performance from Ontario to the Pacific, enabling us to deploy new technology and accelerate the development of our LTE network.’ The transactions require Competition Bureau approval before completion, which according to Mobilicity’s chief restructuring officer Bill Aziz is expected soon.

The deal ends the indebted Mobilicity’s two-year search for a buyer. Guy Laurence, CEO of Rogers, claimed in a press release that ‘the transaction with Rogers provides the best possible outcome for Mobilicity’s customers, dealers and employees,’ going on to note that Rogers will ensure continuity of service on its nationwide network for Mobilicity’s 155,000 users in Toronto, Ottawa, Calgary, Edmonton and Vancouver, whilst Mobilicity staff will have the opportunity to continue their employment under Rogers. The CAD440 million purchase price is offset by tax losses valued at approximately CAD175 million which Rogers will acquire. The transaction is subject to working capital adjustments. Mobilicity has around 155,000 subscribers , while according to Bill Aziz the company has outstanding secured and unsecured debt totalling approximately CAD600 million, including accrued interest and financing costs; the company’s original equity backers invested approximately CAD250 million.

TeleGeography’s GlobalComms Database notes that Shaw won its mobile spectrum in July 2008’s AWS-1 auction, receiving its ten-year licences in September 2009 after paying the CAD190 million total bid price, but in September 2011 it abandoned cellular rollout plans in favour of a Wi-Fi strategy, citing the level of investment required to compete with existing cellcos. In January 2013 Shaw sold Rogers an option to purchase its mobile spectrum after a five-year blanket government ban on AWS licence transfers to incumbents expired – in Shaw’s case in September 2014 – exercisable only with permission from Industry Canada and the Competition Bureau. Shaw has now confirmed in a statement that it made a tidy profit on the spectrum, despite the licence term having less than five years left to run: in 2013 Rogers paid an initial CAD50 million to purchase the option plus a CAD200 million down payment and agreed to pay a final CAD100 million upon exercise of the option, raising Shaw’s total proceeds for the sale to CAD350 million. The Rogers-Shaw transaction is expected to close by the end of June 2015.

In a footnote to Rogers’ latest deals, its nearest mobile rival Telus – which had three takeover offers for Mobilicity blocked by Industry Canada in 2013/14 – reportedly tabled a higher bid than Rogers’ successful offer, but Mobilicity’s secured debt holders apparently favoured the Rogers deal as being more likely to gain government approval. Local press reports have speculated that Telus could seek to challenge the deal in court.